The 2025 Nobel Prize in Economics, awarded to Joel Mokyr, Philippe Aghion and Peter Howitt, is more than an academic honour. It reminds us that lasting prosperity depends less on what we can build and more on what we can imagine. Their work explains how innovation and the cycle of creative destruction drive growth.
Mokyr’s historical research showed why the Industrial Revolution took off where it did. He says ideas mattered more than resources, and that countries that dared to try new ideas remained successful during the Industrial Revolution. Mokyr’s conclusion: knowledge, and hence growth, spread in societies that valued inquiry, debate and experimentation.
Aghion and Howitt transformed this insight into modern economics. They built the mathematical models that proved that new technologies lift productivity but also dismantle old structures. Joseph Schumpeter famously termed this process as creative destruction. Growth, according to Aghion and Howitt, is not smooth or painless. It requires accepting disruption as the price of progress.
This view challenges the illusion that growth can be engineered purely through infrastructure and state projects. Daniel Susskind wrote in the Financial Times, reacting to the same Nobel announcement, that the UK government still believes in “build, build, build”. It thinks roads, reservoirs and housing will revive stagnating economies. Susskind said that such plans rely too heavily on the visible, tangible world. Real growth, he said, comes from the intangible one – from ideas, research and technological creativity. His piece, written in the context of the UK’s economic stagnation, applies even more urgently to Pakistan.
Our own development debates reflect the same material bias. Each new government promises highways, power plants, industrial zones and housing schemes. These projects look impressive in the media. They generate ribbon-cutting ceremonies but seldom change how the economy learns or innovates. Public investment remains tied to concrete and steel. The intangible drivers of productivity, ideas, data, patents and skills often remain underfunded and undervalued. If Britain risks stagnation despite its wealth, Pakistan risks irrelevance unless it builds a knowledge economy.
Pakistan’s predicament is not mysterious. Our growth spurts come and go because they rely on consumption and capital inflows, not productivity. Firms are protected. Markets are shallow. Education rewards rote learning rather than problem-solving and universities produce papers rather than patents. We often debate stimulus, subsidies and fiscal reforms. They are all necessary, but not really sufficient, to embark upon the fourth industrial revolution. Our policies still treat growth as something that can be administered rather than discovered.
One might argue that Pakistan has never lacked in talent or in ideas. From fintech entrepreneurs to climate-smart farmers, innovation exists in pockets. What’s missing is an ecosystem that connects those pockets. We have research, finance and policy in silos. In Mokyr’s language, we have “useful knowledge” – but we lack the institutions that let it diffuse through society.
Our public sector funds projects, but rarely ideas. Venture capital flows to apps, not to technology that might transform agriculture or manufacturing. And our regulatory culture rewards conformity more than creativity.
Aghion and Howitt’s models would classify Pakistan as a country where incumbents dominate and entrants struggle. In such environments, firms innovate less because they face little competition, and policymakers shy away from reforms that threaten established interests. The result is low productivity, slow diffusion of technology and limited upward mobility.
Yet, as per the Nobel laureates, it is disruption that clears the way for renewal. Creative destruction does not mean chaos. It means rebirth. Shielding inefficient firms, subsidising declining sectors or over-regulating new ideas only delays progress.
Pakistan must re-imagine what a growth strategy means. Following Susskind’s reasoning, a genuine plan would start by asking not how to spend more money but how to generate more ideas. It would reform intellectual-property laws to protect real creators while allowing knowledge to circulate. It would treat research and development as seriously as roads or power projects.
The laureates’ insights imply that economic growth begins in the classroom. It depends on how we teach science, mathematics and reasoning. In a world shaped by artificial intelligence, Pakistan still debates whether students should use AI tools instead of how to use them well. Susskind has argued that the UK should spend a third of classroom time teaching the next generation to master such technologies. Pakistan should do the same. Teaching students to work with new technologies and ideas could be our fastest path to the innovation economy. We cannot expect innovation from a system that punishes curiosity.
The labour and capital markets also need a reset. Talented Pakistanis migrate because they see no space to turn ideas into enterprises. Venture funding is scarce. Intellectual-property protection is uncertain. Bureaucratic red tape discourages experimentation. If we are serious about competing globally, we must compete for innovators the way others compete for investment.
Creative destruction displaces workers and firms. Successful economies help people adapt without halting the process. Pakistan’s social-protection system could play that role. Linked with reskilling and digital-literacy programmes, it can cushion the shock while keeping the economy dynamic. The state’s job is not to freeze change but to make transition bearable.
If Pakistan’s past growth model was built on remittances, imports and borrowing, its future must rest on ideas. We are living in a world where traditional comparative advantages, cheap labour and proximity to markets are eroding. Our textile exports face carbon tariffs. Our agriculture faces climate volatility. Our industry struggles with outdated technology.
The alternative is to build a growth model rooted in knowledge, creativity and sustainability. This means doubling spending on R&D, creating innovation funds linked to universities, simplifying patent processes and offering fiscal incentives for firms that invest in cleaner, smarter technologies. It also means protecting the young innovators who challenge entrenched interests.
Innovation is not only about machines and algorithms. It’s about how a society organises itself to learn and adapt. Mokyr often says that the Industrial Revolution began when people started believing that progress was possible. The belief that tomorrow can be better because we can make it so is what separates stagnant societies from dynamic ones.
The deeper issue is cultural. The 2025 Nobel Prize in Economics is essentially a prize for optimism – the conviction that human ingenuity, given the right conditions, can overcome limits. It also reminds us that growth is a choice and a collective decision to reward creativity, tolerate disruption and invest in knowledge.
Pakistan’s real growth will begin the day it starts prioritising ideas and innovation as equally as it prioritises brick-and-mortar projects.
The writer heads SDPI, chairs the board of the NationalDisaster Risk Management Fund, and serves on the ADBI’s Advisory Board. He posts on LinkedIn Abidsuleri